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Krispy Kreme Crumbles on Goldman Sachs Downgrade to Sell

Krispy Kreme may have limited pricing power to offset inflationary headwinds, Goldman Sachs says.

Krispy Kreme  (DNUT) - Get Krispy Kreme, Inc. Report crumbled Wednesday after Goldman Sachs downgraded the donut chain to sell from neutral and slashed their price target to $14 from $15.

Shares of the Winston-Salem, N.C., company were falling nearly 9% to $13.30 at last check.

Analyst Jared Garber told investors in a research note that rising cost pressures across many key inputs for Krispy Kreme's increasingly company-owned model present a key risk for margins, according to the Fly.

In addition, Garber said, consumer survey data suggests the brand may have limited pricing power to offset inflationary headwinds.

The analyst noted that the indulgent food category is only expected to grow at 1.1% annually through 2025 as consumers shift towards healthier lifestyle.

Last month, Krispy Kreme reported better-than-expected projections. 

The company said it saw solid fiscal third quarter sales and added demand would continue to rise into the holiday quarter.

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Krispy Kreme more than halved its losses to $5.6 million, or 4 cents a share from a loss $14.8 million, or 12 cents a share in the year-earlier quarter.

Revenue rose 18 % to $342.8 million from $290.2 million in the year-ago quarter. Analysts surveyed by FactSet estimated Krispy Kreme to clock earnings of 6 cents a share on revenue of $337.66 million.

GAAP revenue from international markets rose 37.4% to $87.3 million from $63.5 million in the same period a year ago.

While GAAP revenue from the U.S. and Canada grew 11.5% to $225.8 million from $202.6 million in the previous year.

For the full fiscal year 2021, Krispy Kreme expects adjusted net income to grow between $62 million to $68 million on revenue growth between $1.34 billion and $1.38 billion.

Also in November, a Truist analyst downgraded the doughnut chain to hold from buy and slashed his price target to $15 from $2

Krispy Kreme began trading publicly in July. The chain first went public 21 years ago, but in 2016, JAB Holding, the investment arm of the Reimann family, took Krispy Kreme private after buying it for $1.35 billion